The market may not like the fact that inflation’s decline this year has started to stall out. While inflation does look likely to start showing signs of staying in the 3-4 percent range, some investments fare better than others in an inflationary environment.
The best investment for this scenario is for a company that offers a service and can raise prices far higher than inflation. It’s also best if they don’t have anything to physically manufacture and produce.
The winner here is insurance companies, particularly in the property and casualty space. Auto insurance rates jumped over 25 percent in the past year. And they’ll likely continue to rise over time, inflation or not.
That’s good for insurance companies. They also tend to be excellent long-term investments, given their slow and steady returns over time.
Action to take: In the insurance space, The Progressive Corporation (PGR) is a leader with strong underwriting discipline and low rates. That should allow them to continue to trend higher over time.
Shares pay a 0.4 percent dividend yield, but have a low payout ratio of less than 15 percent of earnings. It’s likely that the dividend payout will increase over time.
For traders, the November $135 calls, last going for about $3.65, could see mid-double-digit returns in the months ahead on a bounce higher in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.